The ruling upholds a decision by Likud's law committee that Netanyahu's power to convene the party's central committee could be given to the head of the central committee, the Jerusalem Post reported.
An internal Likud court had overturned the law committee's decision, causing the head of the central committee, Danny Danon, to file a lawsuit in Tel Aviv district court.
The central committee is now expected to call for votes on issues the prime minister opposes, such as territorial concessions and a possible merger with the Yisrael Beytenu party.
In her ruling, Judge Dafna Avnieli criticized Netanyahu for attempting to paralyze the party.
Danon said the court's decision would ensure Likud, the Israeli Parliament's largest party, "remains loyal to its values."